Monday, 20 June 2016

More on Brexit and the politicisation of truth

I watched the BBC’s early evening news on Saturday: not something I
would normally do but for the football. (Unfortunately I cannot find
a recording of it.) The bulletin reported the IMF post-Brexit
forecasts, and then (for balance) had Patrick Minford saying why the
IMF had got it all wrong. The impression most non-economists viewers
would have received is that the long run economic impact of Brexit
could go either way.

I think we can talk about at least four types of politicisation of
truth:

Ignoring facts: ‘shape of the earth: views differ’ type
reporting.

Ignoring expert pluralities: for uncertain outcomes, failing to
mention that one side is a minority view. The economics of Brexit is
an example.

The first is created by the overriding need for balance. The second
and third may be, but they can also just reflect inadequate
reporting, which is responsible for the fourth. They all are examples
of political views overriding truth.

A clear Brexit example of ‘shape of the earth: views differ’
style of reporting is the £350 million a week figure. Furthermore it
is a clever lie, because it focuses attention on a direct benefit of Brexit,
and away from probable costs. (I’ve no idea if this is true, but I
once heard that when Joseph McCarthy claimed there were many
communists working in government, he would keep changing the number.
As a result, the topic of conversation became how many there actually
were, rather than whether there were any at all and whether it
mattered.) It is not the only example from those campaigning for Brexit.

In practice I think more damage is done by the treatment of uncertain
events with probable outcomes. The medium term cost of Brexit is of
course uncertain. But a huge majority of economists think it is much
more likely to be an economic cost rather than an economic benefit.
So Minford was proposing something that only around 5% of UK
economists believe. That is widely acknowledged on all sides, so when
the BBC or any other media organisation fails to mention that, they
distort the truth. Or, to put it another way, it is not balance at
all but favours the Leave side. Another example from those campaigning for Brexit is the prospect of Turkey joining the EU.

This is a generic problem which politicians and others exploit. There
is a huge consensus among climate scientists, yet if the ‘balance’
model is applied to global warming - which it will be if the subject
gets politicised - we get the media giving the impression of
scientific division. That is why in the US over a third of people
think
that scientists do not generally agree about man made global warming.
Perhaps it is also why so many people think Brexit will not be a
medium term cost to them.

24 comments:

Three falls into one as it concerns an interpretation of facts (history).

Two is correct as stated but, as you say, the context is the assessment of uncertainty and that the weight of opinion is one way does not mean that it is right in terms of the eventual outcome.

Surely in any assessment made of the effects of something like Brexit you are dealing with uncertainty and not risk and when you talk about "uncertainty with probable outcomes" I interpret that as risk and not uncertainty which is what it is.

Furthermore the actual dynamics are also dependent on the evolution of the EU and the EZ so are not just determined by what happens to the UK economy and this multiplies the difficulties of analysing the effects of Brexit.

You interpret matters as favouring the Leave side and you rightly state that "expert opinion" as a body is not equivocal on this matter but, as it is dealing with uncertainty you cannot in truth call the weight of opinion as in itself reducing that uncertainty.

I'm also sure you're aware of the work of Philip Tetlock who looked at expert opinion in respect of political forecasting and, whilst this may not be quite the same thing, it is nevertheless instructive.

Hi Simon,Many thanks for this. It looks to me that Brexiters have studied really well ancient Greeks and, in particular, Pythagoras who said that "number rules the universe". This number, for Brexiters, is the discredited £350 million a week...Best,Costas Milas

The figure has not been discredited, just not properly explained and I have raised this issue with the Vote Leave campaign as I think it has harmed the position.

The majority of the population are not actively engaged politics and economics other than what they perceive to be their effects on daily life. The micro view if you like. Macro views are beyond the capacity of most because the system is so complex.

That is why governments are democratically elected, to manage these factors and act in the best interest of the demos. It is clear that there is no EU demos.

Looking at the £350 million per week figure - why is it being used? This is the cost of our EU membership without taking the "Rebate" into account.

Our rebate is not included in any Treaty. The level of the UK rebate is decided every seven years, as part of the EU's long-term budget, the Multiannual Financial Framework (MFF), which is negotiated by the EU leaders.

It has to be approved unanimously by all 28 EU leaders and it runs out in 2020.

When the EU starts to negotiate the next MFF, the rebate will certainly be on the table again. Many other EU countries would like to see it scrapped or reduced. The UK currently has a veto but :

Cameron's came back from Brussels with a deal to secure a "Red Card" for Britain in the UK, the right to oppose if 14 other member states could be persuaded to support the UK

But in order to get this he had to give up one of Britain's few remaining vetos,

Britain's right to give or withhold consent to future treaties which convert the Eurozone block into a European Superstate.

So we loose the veto and if we can't persuade 14 other member states to support our position then the UK bill increases to around £20 billion per year. This is likely to increase as set out in the EU 5 presidents report.

Interestingly Cameron chose to report his concession as a "Red Card" when the EU Referendum is being held during the Euro 2016 football tournament.

In Summary :

£350 million per week is our actual membership fee£267 million per week (taking into account our rebate)

Can anybody guarantee our rebate? Is it protected by Treaty? Is our membership cost likely to reduce?

Tony Blair agreed to surrender a large portion of the British rebate in return for a promise of Common Agriculture Policy (CAP) reform — a promise that was never kept.

Thanks to the decision he made in 2005 the value of the rebate has fallen by 40 per cent since 2010.

Stephen Buch had a good explanation of how the £350m figure works well:

"What undid the Alternative Vote was a ruthlessly effective campaign against it – one that was almost completely fact-free. No2AV focused relentlessly on the cost of a new voting system; poster after poster made reference to its illusory price tag of £250m. “He needs bulletproof vests,” intoned one illustrated with a picture of a soldier, “NOT an alternative voting system.” Another came with a picture of a baby: “She needs a new cardiac facility, NOT an alternative voting system.”

"As one veteran of the pro-AV campaign recalled recently: “It was impossible to fight. How do you repudiate it without repeating it? We never found a way.”

"That appeal to economic interests was so powerful that Vote Leave has come up with a similarly memorable figure: the £350m weekly cost of Britain’s EU membership. This has been debunked by fact-checkers such as Full Fact, which estimates that the UK pays roughly £9.8bn a year once money back is taken into account. Regardless, Vote Leave keeps quoting the figure – and no wonder, because the chief executive of Vote Leave is also the architect of No2AV’s crushing victory: a 38-year-old LSE graduate called Matthew Elliott."

Well it looks like Brexit is going to happen anyhow, so you may as well take advantage of any benefits it offers.

The EU negotiations will take at least three years - 1st Jul 2019 is being pencilled in since that is when the new EU parliament convenes. During that time the EU treaties remain in force. A year after that the Tories face a UK general election.

In the meantime the Left can set its stall out for an EU free shift towards public investment and jobs-for-all - funded directly from the newly freed up Bank of England and a rational immigration policy targeted at the skilled.

Strategically it's like having the high ground handed to you on a plate.

Freedom from Article 123 and state aid rules are important as this FT article (pay wall) shows:

https://next.ft.com/content/c3d7c846-f663-11e5-803c-d27c7117d132

"In January, Margrethe Vestager, competition commissioner, announced an investigation into €2bn of state support that the Italian government gave to the struggling steelmaker Ilva.

On the same day, she ordered the Walloon regional government in Belgium to recoup €211m provided to steel companies in the country’s depressed industrial southern regions that are part of the Duferco group.

In its statement at the time, the commission declared flatly that “EU state-aid rules do not allow public support for the rescue and restructuring of companies in difficulty in the steel sector”. This was “to ensure a level playing field for those steelmakers that have already been carrying out painful and costly restructuring plans funded through private resources”."

The odds were always against Brexit. It is very unlikely that you can have a vote that changes the status quo with such a huge undecided vote. That is why the bookies odds have consistently very much been on remain.

I believe the similarities go deeper and are bound up with human psychology. We have evolved to learn that if you do something stupid that causes pain, we avoid that action. However, it seems to me that if action and consequence are separated in time with other events intervening, then we fail to make that link so clearly and instead we can missatribute cause and effect. In evoltionary terms, immediate harm is most important, eat that berry and get sick, cuddle bear cubs and well see Revnant.This allows charlatans to dispute the link, remember Farage thinks doctors have it wrong about fags and cancer, and make assertions that people's own experience do immediately not disprove such apparent 'common sense'. I'm old enough to remember stories of 85 year 40 a day smokers who never had a day of ill health. I think it was not till lung cancer and amputations started to kill close relatives that people finally bought into the smoking is killing you thing. (1970's was the tipping point in my hazy memory). So Minford gets away with his ludicrous prescriptions because they are outside people's experience.

As a side note on climate changeAs a scientist, I can tell you there is a lively debate around climate change but its not what the public think. There is a minority view that in fact we have already gone past the failsafe, that catastrophic climate change is underway and is unstoppable. To be clear, the majority think there is still more CO2 we can take but if we don't stop accumulating very soon we will hit a discontinuity. Richard Alley https://en.wikipedia.org/wiki/Richard_Alley explains how dangerous the melting of the polar shelves are because they will result in south pole glacier melts. He made a very telling comment that people are ill suited to properly evaluate the possibility of discontinuous change.

'Balance' isn't only the parallel to the climate example: we're also seeing one side's willingness to knowingly exploit public (mis)understanding of uncertainty. It's impressive, actually: it manages to convince many that if you're driving in fog near a cliff edge, it's best to speed up.

Can anyone spot a trend here? Where is this huge economic benefit of EU membership? And why is the economics community so quiet about this data? Does anyone really believe that our growth rate over the last 40 years would have been even lower than 1.6% if we were outside the EU?

It seems to me that the politicisation of the truth extends to mainstream economists as much as politicians. And perhaps the above data amply illustrates why the public don't trust the prophesies of the IMF, BoE, Treasury, IFS, OECD etc.

As for the issue of Brexit: the other issue economists and politicians seem to ignore is the fiscal sovereignty one. The EU clearly wants to harmonise tax rates across national borders in the long term in order to complete their vision of the Single Market. I have set out my arguments here:

cantab83.blogspot.co.uk/2016/06/the-labour-case-for-brexit.html

If this happens, what then for Keynesian macro policy? We will all end up like Greece, prevented from any form of State intervention in a recession because it would distort the Single Market. On top of that EU citizens would use freedom of movement to bid down tax rates in competing member states, so the tax gap would increase, and spending on services would fall.

Fundamentally the problem with the EU is that it is becoming just one big tax avoidance scheme for the rich and upwardly mobile. And a neoliberal nightmare!

Have you read Robert Gordon's book: The Rise and Fall of American Growth?

Your figure would be explained by the arguments used by Gordon in that demography and innovation have reduced growth rates since 1970 and this is part of a secular trend.

Whether we would have grown faster outside the EU is a question that no one can answer as there is obviously no counterfactual.

I actually think Brexit is a sideshow; that we will vote to Remain at the end of the day but that these fundamental structural issues highlighted by Gordon, as well as the depredations caused by the Euro, will reassert themselves with a vengeance and that the EU is likely to disintegrate anyway over the next ten years.

In truth the last thing the EU and UK elites want is a Remain vote because then there is nothing to blame when it all goes wrong.

Robert, of course there are other possible causes of the drop in growth over this period. For example the 1973-1992 period included two miners strikes, at least two oil price shocks, the three day week, the IMF crisis, the Thatcher/Howe recession of 1981 and the winter of discontent. So if most of this had not happened one would expect the growth to have been greater, but it is difficult to believe that it would have been anywhere near the 2.8% of the pre-EEC economy.

Of course as you point out there are other long term factors that could also play a part. For example, Hyman Minsky highlighted the change over time of the consumption-income ratio in his book on Keynes (see p162) as being part of the problem of growing inequality, decreasing growth rates and greater financial instability in western economies.

But the key point is that the central tenet of the Remain case has been that membership of the EU has been a massive benefit to the economy. This is a claim that is clearly not supported by any reliable data, and worse still does not stand up to any critical analysis based on qualitative economy reasoning.

Surely the real problem is that nobody thinks at all, and so economists are allowed to gift the economic argument to Remain, and nobody spends two seconds looking at their arguments. The Treasury, IFS and OECD are cited every single time the Remain campaign have a platform, and all the journalists are too lazy to read the source material themselves and put the assumptions under pressure. Free trade promotes efficiency. The IFS, OECD and Treasury all assume that leaving the EU will facilitate protectionism, and this will produce inefficiency. This assumption is at the heart of their argument. Well, as they say, junk in = junk out. Why would we be protectionist? Why wouldn't our manufacturers continue to meet single market specs and sell into Europe (paying a 2-3% tariff if necessary)? Why wouldn't competing for customers around the world drive efficiency? Economists are allowed to aver that total GDP is meaningful. So if 100 million people came to the UK and produced £10,000 worth of stuff that would increase GDP by 50%. They'd pay no tax and we'd have to slash public spending by around 2/3rds per head, so I don't think that would make us better off. Interestingly, though, the British Treasury thinks that it would, so long as they lived ten to a house. Because the Treasury has this curious idea that taking total GDP and dividing it by households - not individuals - is somehow meaningful. If the 100 million new Britons all lived in one big house according to the UK Treasury we'd all be massively better off. The new 50% higher GDP wouldn't be divided by a population of 165m to give us a figure per head. Oh, no, no, no, no. We'd take 30 million households, add the number 1 to it, divide £3 trillion by 30 million plus one, and discover that despite the fact that we'd slashed spending on health, education and welfare by nearly two thirds we'd actually be much richer. That's the standard of reasoning we're getting from the Treasury. We've left-leaning journalists accepting the validity of dividing GDP by households when they've spent their lives arguing that distributions matter, and railing against the avoidance of tax by rich individuals and the payments of dividends overseas. This EU referendum debate has been a complete disgrace. The economics profession has tied a bow around the Remain campaign and gifted it to the British people. Bias in the media? Dear God, the fourth estate is as nothing compared to the queen of the social sciences when it comes to misleading the ordinary folk.

I agree with this. We do not see anything about what these studies are assuming. I also suspect that probably all these forecasters know each other and are basically following each other's assumptions and methodology. I suspect non-tariff barriers and subsidies are more important than tariffs (tariffs on most products have come right down). These issues relate to commercial and other law, product standards etc and in terms of ease of negotiating these and new trade deals, the people we probably need to hear from are legal experts.

I don't understand why the prospect of a Brexit has reduced you to this condition of disbelief and despair (your words).

As the Europhiles quite correctly tell us, membership of the EU is about much more than money, trade, and investment; so too surely should be the leaving of it.

As I understand the numbers, at worst, and after several years, UK GDP will be around 6% lower than it otherwise would be. Things may be much better than that, or things may be slightly worse, but the equivalent of a couple of years of growth seems a very small price to pay, for a very large prize.

This inky-fingered Micawberish approach to the supreme issues of national independence and parliamentary sovereignty demeans us all I think.

George Soros and others say that Brexit will cause a large drop in the Pound. But this would serve to reduce the trade deficit? To the benefit of UK jobs? It's by no means clear to me how this would interact with the other fearful things warned against, but this part at least seems as if it could be stimulative.

It could, indeed. But with much of British manufacturing gone, there is a limited prospect of it helping much (remember the disappointment with the march of the makers?). Companies relocating to the UK? Well, apart from the prospect of duties, there is the cost of having customs controls when shipping to the EU. Also, with a sufficient drop in the value of the pound to potentially counteract the costs of tariff and non-tariff barriers, you would also have a sufficient degree of inflation that most people would likely be worse off, thus effectively shrinking the British market (due to reduced purchasing power).

if we shrink, but become fairer, less unequal, more democratic, is that not a good outcome? I realise that none of the brexiteers are offering this (JC might, but he's bremain) but the chances of any of the above happening in the EU (not Europe) seem like zilch. If the only effect of staying in the EU is to make the 1% richer, who gives a shit?

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